basically the title I’ve always wondered how it is economics
In: Economics
Game theory tries to use math to define strategy and how people react to other people’s strategies.
For example, your school teacher asks everyone in your class of 4 students to pick a number from 1 to 10. You can pick any number you want and you will get that many candies divided by the number of people that picked that number.
Your instinct is to pick 10, the highest number, but you know that the other students also want the highest number of candies, and if you all pick 10 you get fewer candies than if you had picked 4 and nobody else had picked 4. However, all students can think this way and you can then assume that nobody is likely to pick 10.
The math that formally defines these outcomes and the optimal strategy given other’s strategies is game theory.
An example I can give you in economics is that if it was possible to know the true value of a stock, nobody would trade it because the buyer would not buy it unless it’s being sold below it’s true value, but the seller knowing this would never sell it below it’s value, and vice versa.
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